The U.S. government posted a $345 billion deficit in August as receipts of $344 billion were far outpaced by $689 billion in spending. The largest outlays were Medicare: $141 billion and Social Security: $134 billion, while net interest — at about $93 billion — is now the third-largest federal expense, underscoring the pressure rising borrowing costs put on the budget.
Markets are already pricing that pressure into assets. The Federal Reserve is widely expected to cut rates by 25 basis points in September, but history shows easing can have paradoxical effects: when the Fed eased by 100 bps in September 2024, long-term yields rose sharply — the 30‑year Treasury climbed from 3.9% to 5% and currently sits near 4.7%. With recent data pointing to an acceleration in inflation, a premature rate cut could rekindle that dynamic, pushing yields and debt-servicing costs higher.
That macro backdrop is one reason investors are reallocating. Gold has surged to record highs, nearing $3,670 per ounce, up roughly 40% year-to-date. At the same time, Bitcoin crossed above $115,000 as some market participants hunt for alternatives to traditional government debt amid growing concerns about fiscal sustainability.
These moves reflect a mix of hedging and speculative positioning. Bitcoin’s price is sensitive to liquidity, risk appetite and institutional flows; higher government borrowing costs can both undermine confidence in fiat yields and increase demand for non-sovereign assets. However, crypto remains volatile: rapid inflows can reverse quickly if yields spike or policy signals change.
Policymakers face trade-offs between supporting growth and containing inflation, making the path for rates uncertain. For traders and long-term investors alike, the key takeaway is to monitor real rates, Treasury yields and inflation signals — they will likely shape asset allocation in the months ahead. Risk remains elevated; this is market analysis, not investment advice.
Source: CoinDesk. Read the original coverage for full details.